The Bank of Thailand and the Thai Credit Guarantee Corporation (TCG) has asked for a 300-million-baht budget from the Office of Small and Medium Enterprises Promotion to pay for a 1.75% credit guarantee fee for the first year for small and medium-sized enterprises (SMEs).
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The request is part of an effort to attract SMEs to use the service when seeking bank loans, to ease their financial burdens amid the economic doldrums.
The 300 million baht covers the first-year credit guarantee fee for up to 15 billion baht worth of SME loans, said TCG's president Vallobh Tejapaibul.
With the credit guarantees, state-owned TCG will be jointly responsible for a certain portion of the loan if there is a default, which could encourage banks to extend loans to SMEs as they usually carry higher risks than big businesses. However, the credit guarantee fee of 1.75% for lending is an obstacle to attracting SMEs to take advantage of the service.
SMEs have been adversely affected by the prolonged political chaos numbing the already lacklustre economy, while banks are reluctant to provide new loans because of rising non-performing loans (NPLs). The Federation of Thai Industries recently warned that up to 100,000 SMEs could shut down within six months if the government fails to help them cope with cash flow problems.
TCG almost halved its 2014 credit guarantee target to 57 billion baht from 100 billion after the Fiscal Policy Office trimmed its 2014 economic growth forecast to 2.6% from 4.5% to 4.8%. The latest credit guarantee target is also well below last year's accumulation of 87 billion baht.
However, the credit guarantee ratio to SME loans has increased to 25% this year from last year's 20%.
TCG guarantees credit to two projects — start-up SMEs and Phase 5 portfolios — while a new project providing credit guarantees to micro-businesses extended by the Government Savings Bank is pending approval from a new administration.
The start-up SME loan project, which runs to the end of next year, gives companies operating for less than three years more of an opportunity to secure loans from financial institutions, as TCG guarantees it will share the responsibility if the loans turn sour.
The Phase 5 portfolio scheme, which expires late next year, provides credit guarantees worth 240 billion baht for SME loans.
Under the scheme, TCG takes the responsibility for NPLs for 18% of the loan, while banks are responsible for the remainder.